Whole life insurance: Whole life insurance is a type of permanent life insurance that provides coverage for the policyholder's entire life. It has a fixed premium that is paid throughout the policy's duration. Part of the premium is invested in a savings component called the cash value, which grows tax-deferred over time. The cash value can be accessed by the policyholder during their lifetime, either through loans or withdrawals, and can also be used to pay the premium.
Term life insurance: Term life insurance is a type of temporary life insurance that provides coverage for a specific period of time, typically 10, 20, or 30 years. The premium is fixed for the duration of the policy, and there is no cash value component. If the policyholder dies during the term, the death benefit is paid to the beneficiaries. If the policyholder outlives the term, the coverage ends, and no benefits are paid out.
The main difference between the two policies is that whole life insurance provides permanent coverage with a savings component, while term life insurance provides temporary coverage without a savings component. Whole life insurance tends to have higher premiums than term life insurance because of the added savings component.
When deciding between the two policies, it's important to consider your financial goals and needs. Whole life insurance can be a good option for those who want permanent coverage and are willing to pay a higher premium for the added savings component. Term life insurance can be a good option for those who want coverage for a specific period of time, such as until their children are grown or their mortgage is paid off.
Learn more about whole life insurance versus term life insurance coverage.